Softer Dollar Again – Currency Thoughts
Softer Dollar Again
September 16, 2025
The dollar was nudged lower as the Federal Open Market Committee prepared to begin a 2-day policy review that is likely to cut the federal funds rate target for the first time since last December. President Trump’s newest governor-appointee Stephen Miran and Lisa Cook, whom he tried to prevent from participating in the decision, will each be in attendance. The majority market view is that the interest rate cut will be by 25 basis points, although a 50-point drop is considered possible. Updated economic forecasts and Powell’s press conference will be combed for clues regarding future policy changes.
The euro got an additional lift, rising as high as $1.1819, from a better-than-expected September reading on investor sentiment that pointed to cautious optimism. Also, a prominent member of the European Central Bank Governing Council urged a steady policy hand at this juncture. Just as the Fed is readying to resume rate cuts, the ECB appears comfortable with pausing, which is ironic because President Trump’s verbal campaign for lower rates had been partly framed around citing ECB easing.
The weighted DXY dollar index got within 0.6 index points of its 52-week high overnight. The dollar has fallen 0.4% against the euro and Swiss franc, 0.3% relative to sterling, and 0.2% versus the Japanese yen. After a 3-day weekend, Japan’s Nikkei-225 equity index closed 0.3% higher, and the 10-year JGB yield firmed a basis point point.
Ten-year sovereign debt yields also are a basis point firmer in the United States, Germany, France, Italy and Spain. The 10-year British gilt climbed two basis points. In other Pac Rim stock markets, share prices this Tuesday rose 1.2% in South Korea, 1.1% in Taiwan, and 0.7% in India but closed unchanged in China and Hong Kong. European stock markets are moderately lower, and U.S. stock futures are up slightly.
Prices for gold and bitcoin moved slightly up overnight, while oil edged down 0.1%.
The ZEW Institute of investor sentiment toward Germany rebounded unexpectedly to a 2-month high of 37.3 this month from 34.7 in August and a low last April of -14. The improvement occurred in spite of a 4-month low in the index of current economic conditions.
Economic sentiment toward the whole Euroland economy also rose to a 2-month high of 26.1 versus a reading of -18.5 five months earlier.
In the latest monthly batch of British labor statistics, jobless claims rose 17.4K following two months of declines that totaled almost 50K. Unemployment remained at 4.7%, matching a 4-year high. Average wage earnings growth of 4.7% was up marginally but in line with analyst expectations and well below the 6.1% reading at the end of 2024.
Japan’s tertiary index of service sector activity rose 0.5% in July, beating expectations but causing the 12-month increase to fall to a 4-month low of 1.6%.
Food price inflation in New Zealand in August matched July’s 20-month high of 5.0%.
Industrial production in the euro area rose in July by 0.3% on month and 1.8% on year. That’s a mild improvement on the second quarter averages that showed a quarterly 0.3% downtick and a rise of 1.4% compared to the second quarter of 2024.
Italian consumer price inflation in August was left unchanged from preliminary estimates of a 0.1% monthly rise and a year-on-year pace of +1.6%. Italian inflation earlier had plunged from 11.8% in October 2022 to as low as 0.6% at the end of 2023.
Euroland on-year labor cost growth accelerated to 3.6% last quarter from 3.4% year-on-year in the first quarter. A 3.7% rise in wages was down from 5.4% in the first quarter of 2024.
Slovakian consumer price inflation printed at 4.2% last month, down from July’s 4.4% 19-month high.
The Central Bank of Armenia’s policy interest rate, which was last changed in February, was again kept at 6.7%. The February reduction of 25 basis points followed 225 bps of cuts during 2024. The peak rate of 10.75% prevailed from December 2022 until June 2023.
A trio of U.S. August data releases later this day revealed higher-than-projected retail sales, industrial production and import price inflation. Retail sales rose 0.6%, matching July’s monthly increase and lifting the 12-month rate of increase to a 4-month high of 5.0%. Industrial production had been expected to fall marginally but instead edged 0.1% higher. However, the size of July’s drop was revised from an initially reported -0.1% to -0.4%, and July-August average production was unchanged from the 2Q mean. Despite a 0.8% monthly slide in imported fuel costs, overall import prices went up 0.3%, their biggest monthly increase in 7 months. Overall import prices were unchanged from a year earlier, but non-fuel import prices increased by a 16-month high 0.4% on month and by 0.9% from the August 2024 level.
Today marks the 33-year anniversary of a massive sterling sell-off that forced the British currency to abandon the European Monetary Mechanism, which was the forerunner of the euro. As a key member of the Soros Management Fund, a much younger U.S. current Treasury Secretary Scott Bessent played an important rose in that speculative attack on the British currency that came to be known as Black Wednesday.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of Armenia, Euroland and German ZEW expectations index, Euroland industrial production, FOMC meeting starts today
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